Ford’s Capital Markets Day With David Alton Clark – Bullishness Intact (F)

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We’re discussing Ford’s Capital Markets Day with David Alton Clark, who runs the Winter Warrior Investor on Seeking Alpha.

• 0:13 – Ford’s (NYSE:F) Capital Markets Day – bullishness intact
• 4:00 – Glad Ford didn’t raise guidance in last earnings call
• 5:20 – Jim Farley as CEO – Why David loves him
• 7:10 – Ford competitors: Tesla (TSLA), (GM) and BYD (OTCPK:BYDDF)
• 9:30 – What would turn David bearish on Ford?

Transcript

Rena Sherbill: David Alton Clark, who runs the Winter Warrior Investor Investing Group on Seeking Alpha and has been writing for us for a very long time, welcome to Wall Street Breakfast’s new afternoon edition. Great to have you.

David Alton Clark: Hey, thanks a lot, Rena. Glad to be here.

RS: Well, we’re talking Ford (F), which is a stock that you’ve written about, today they had their Capital Markets Day, and we were just talking about some of the takeaways that we’ve had from our initial, kind of listen and watch of the event. The stock has seen some volatility in the recent hours.

The thing that analysts were most pointing to and something you iterated in your article in the middle of April was around their EV ambitions, around their electric vehicle numbers, whether or not they were going to be able to hit 2 million units in North America by the end of 2026. So, talk to investors maybe about your general takeaway and whether or not that bullishness is still permeating through your thesis? What did they say about the EV numbers?

DAC: Thanks, Rena. Yes, the bullishness is still resonating with me. They did a really great job of laying out the roadmap ahead. They’re planning on lowering costs across the board. They’re reorganizing the entire distribution plan. They’ve got three new contracts with nickel and lithium suppliers for the batteries that they just signed this morning, so they’re vertically integrating. And they’ve got two plants that they’re standing up in Tennessee and Kentucky, that they’re expecting to get 30% cost savings on those because they’re implementing new software packages and the development teams. It’s one-of-a-kind, the first time they’ve ever had the teams, the engineers, and the facility teams working together to develop the facilities.

RS: And what do you have to say about the EV numbers in particular?

DAC: The EV numbers sound, like, they’re going to be able to make that number, especially with building in the Ford Pro transit unit, which is a bulk of their EV vehicles are actually in the Ford Pro segment that are for companies like delivery vehicles and those types of things. So, those should be able to come through.

As far as the plants that they’re standing up and the raw materials and the thing that they’ve really focused on is reducing the battery size by increasing the efficiency of the vehicles. And so, as far as what they laid out today, it sounds like, they’re going to be able to hit those numbers.

RS: Why do you think that it’s not the bullishness that you feel isn’t more reflected in the immediate reactions in the market?

DAC: Well, a big issue with anytime you’re in a situation like this, they’ve got huge plans. There’s a lot of moving parts. There’s a lot that could go wrong. Back in the day when I was an auditor with EY, I actually audited Ford, and I was on the cost reduction and avoidance team, and that was one of my specialties back in the day. And one of the things that’s really tough when you’re doing something like this is, they’re changing everything all at once. It’s all happening at one time.

They’ve got new deals for raw materials. They’ve got new plans for how they’re going to manufacture the vehicles. And so, there’s a lot that – of uncertainty there in regards to cost savings and margins. So, it’s a lot harder to forecast in this type of an environment when you’re in the middle of a big change. So, I can see why there’s a lot of people that think that they may not be able to come through.

RS: Which speaks a little bit to the disappointment that was felt in the marketplace after they didn’t raise guidance in their recent earnings call, what was your feeling about that?

DAC: I’m kind of glad that they didn’t raise guidance. Farley has – CEO Farley, he has had a little bit of an issue of being overly bullish in the past. And I think that that has come back to bite him, especially when he had to come back a couple quarters ago and say that they left $2 billion on the table. I think that made a big impression on him. So, rather than overpromising and underdelivering, I think now they’re in the bucket where they’re under promising and hoping to overdeliver.

On the second part of that is, there’s probably a good reason for that. A lot of what I said just a minute ago in the times of, when you’re making these huge changes across the Board and every segment, it’s harder to forecast. And then the other part that I think, it makes a good reason why they shouldn’t do that is, even though they did have a good quarter, this quarter, it’s kind of like when you’re cleaning out your house. You get a lot of – when you take up the trash, well, that’s a big chunk that happens right up front. But then after you’re done doing that, you’re sweeping up the corners, the dust out of the corners and stuff, there may not be that, as much profits and revenues to gather up in the coming months.

RS: That’s an evocative metaphor, I like it. I haven’t heard that before. What are your thoughts about Jim Farley as CEO? Some people call him a visionary, some people, like you said, have some complaints, where do you fall?

DAC: I love him. He’s Ford through and through. He did a great job today. He kicked off the meeting in the morning, and then they had the three different segment leaders, and then they had the CFO. And then they all got up there together. And Farley, he does a good job of delegating. He let all those people talk and then he would jump in and kind of give his little extra spice onto whatever they had said. I really think that he’s great, a great leader for Ford.

One of the things he said that I thought really resonated with me is, this certain time is his vision. His vision for the future that this is just the beginning. They’ve got second generation vehicles planned; third generation, they’re already looking at. They’re planning out for the next 100 years, and he feels like this is the exact same time frame for Ford as it was back when they rolled out the Model T in the 1920s. It’s all happening all over again with the electrification, all the new software, where everyone’s fully connected, they’re going to have – it’s just a whole new Ford and a whole new way to produce vehicles, and get them to the customers.

RS: There’s certainly a lot of change happening in pretty much every sector you look at, there seems to be a lifetime of disruption about to hit us all. And as we look out at the auto sector or whatever sector you call it, I’m not sure what sector it’s called at this point considering there’s so much tech involved in so many other parts. But looking at the makers of these electric vehicles, and let’s say for lack of a better term, the auto sector, what are the competitors or who are the competitors that you think are playing at the same level as Ford? Or do you see competitors playing at the same level as Ford?

DAC: I see, of course, Tesla, GM. GM is still probably their major equivalent competitor, but Tesla BYD is basically taking over in China. And Ford is, there – I just announced they’re kind of backing out of China. So, that could be part of the reason why they’re not upping the guidance, because they’re going to have to probably reduce some – discontinue some operations in China because that market is just going down to, like, to the lowest common denominator of the small compact EVs, which they’re not even planning on competing in that market.

So that’s and –Ford thinks, from what they said today is, like, they’re not competing with Tesla or BYD, they’re going to stick to what they’re great at, the truck segment. And then their next-gen vehicle is actually going to be a three-row crossover similar to what Ford Expedition would be, but they’re totally starting from a whiteboard. They’re totally revamping the vehicle. It won’t be just a Ford Expedition with an electric battery stuck in it. It’s going to be a completely new vehicle and that’s how they’re planning on saving on costs and saving on battery costs.

They’re trying to work on the efficiency of the new vehicles. So that their batteries will be small, a third smaller than these batteries that other EV vehicles are working on right now, because they’re developing these efficient vehicle bodies.

RS: So, we’re just giving listeners a taste of your thoughts and analysis on Ford. For those wanting deeper dives, check out Winter Warrior Investor, that’s David Alton Clark’s Investing Group. I promise you, you won’t be sorry if you check it out.

As we get into the kind of final stretch of this conversation and I’m excited to have you back for many more in our podcasting family. But as we get to the end of this conversation, what would you say might put, I mean, you discussed the bearish case on Ford just now you laid out, kind of the bearish thesis, what would make you change your opinion on them?

DAC: It would be a major change in their tone as far as their plans. They laid out pretty specific plans today. And so, I have written articles before where Farley is on Strike 2. Strike 3, he might be out of there. So, they have made some – that’s kind of why the stock is down at the bottom of the range, and that’s where I kind of like to buy in. But they need to come through on these plants that they’ve laid out, especially the ones for today. And so, if we’re two, three quarters into this and then they have to come up and say, hey, guess what, we were really wrong about this, and we’re changing our guidance. But, we’re planning that. We think we’re still going to make it or whatever. That would probably be, when I would make a change.

And the other thing, too, is that, I am bullish on Ford, but I always layer into position. So, I’ve only bought an initial position in Ford right now. So, I have dry powder that I’m waiting to add to the position. So, if something goes awry to where they don’t hit their targets like they’re talking about, I’m – I’ll either – I may sell out completely or I may just not add any more to the position and leave it at a small, I think it’s like 1% right now.

RS: Well, it’s great food for thought and nice realistic expectations to set into investors heads, always good to have realistic expectations. David, I appreciate you joining us today and look forward to the many other conversations we’re going to be having.

DAC: Thank you, Rena. I appreciate it. It was good to see you.

RS: Absolutely. Thank you.

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